T Nation

Selling Puts Against Treasury Bonds

I want to make paper money from rising interest rates. Anyone like jeaton know how to do this?

Pointers?

[quote]Headhunter wrote:
I want to make paper money from rising interest rates. Anyone like jeaton know how to do this?

Pointers?[/quote]

So you are bullish on bonds?

get option clearance on your account. sell puts on the TLT ETF. Waaaay before then, figure out why selling puts on treasuries is not a way to express the view that you think rates are going up.

[quote]Headhunter wrote:
I want to make paper money from rising interest rates. Anyone like jeaton know how to do this?

Pointers?[/quote]

Aren’t you big on the US inflating it’s currency in the next couple years?

They won’t raise interest rates because then all the banks that got bailed out will go bankrupt again, and even worse we will see the federal government default on its debt. With our fiat dollar based on the full faith and credit of the federal government the dollar will sink. Either way leads to a sinking dollar.

[quote]milktruck wrote:
get option clearance on your account. sell puts on the TLT ETF. Waaaay before then, figure out why selling puts on treasuries is not a way to express the view that you think rates are going up.[/quote]

I hope he meant buy.

This thread is acutally a good idea. I am interested in everyones strategy on options as well.
I have only being using them for about a year now, so the majority of my options experience is in covered options.

what tools does everyone use?
What is your criteria for writing an options (what makes the options look appealing to you\requirements)

What options do you acutally use?

[quote]haney1 wrote:
This thread is acutally a good idea. I am interested in everyones strategy on options as well.
I have only being using them for about a year now, so the majority of my options experience is in covered options.

what tools does everyone use?
What is your criteria for writing an options (what makes the options look appealing to you\requirements)

What options do you acutally use?
[/quote]

I trade on think or swim. With options, I stick to the basics. Covered calls and cash covered puts.

When I get set up on margin, I will probably start experimenting with Vertical Spreads.

I stick to stocks that I have been watching for a while and/or own. When I am writing calls or puts, I do a lot of technical analysis to see at what price I want to write the option at.

Here is my basic strategy.

I tend to be a dividend investor so my time line and company choice is a bit longer than yours. although I have recently been selling calls to add to the cash I make on my stocks. In a year I will push my brokerage to let me sell puts. my intention in doing that is to get free cash on stocks I want to buy at a value that I consider cheap. Until I become more sophisticated with options I am not willing to assume any other risks.

either I sell the stock for a profit (even if it is the profit I could get), or I buy the stock at what I consider a discount due to a close of my sold put.

Caution: options trading is risky and can cause sleepless nights!

Selling puts means one is obligated to buy the underlying equity when the price dips below the strike price sold. If one is long term bullish on bonds then this is a good strategy to try and buy the underlying at a discount – the bonus is that selling the put pays one to make the trade and the only downside is being obligated to buy which is what a long term bull might do anyway.

My strategy is something similar but I lean more toward commodity indexes. I look for indexes that I want to buy then sell out of the money puts on them. If I get “put to” I am forced to buy which is what I wanted to do in the first place. Once I have the underlying equity I then sell out of the money calls which obligates me to sell the underlying (and possibly deliver dividends) once the stock price rises above the strike price sold.

This is a strategy wherein I am getting paid to buy low and sell high with the only downside being to hold equities that could possibly become worthless. The upside is that I am collecting an income on them by selling calls every month. I hedge against losses by diversifying heavily across many different commodity indexes. This strategy also requires an account that allows one to trade on margin – especially when one is selling uncovered puts!!

As an example: stock XYX is currently selling at $51 but I want to own it at a cheaper price. I sell the $45 strike put for $.50 and collect $50 credit per contract (100 stocks per contract at .5 each). If the stock price dips below $45 I am obligated to buy at $45 less the $50 credit received. So I am essentially paying $44.50 for a stock selling at $45 ($44.50 is the break-even price). Once I own the stock I sell an out of the money call; for example, I might sell the $50 call at $.5 and collect $50/contract. If the stock goes over $50 then I am obligated to sell at $50. So not only would I make $100 off of both sales of the options contracts but I would also make $500/contract on the sale of the stock if this scenario plays out. If I am not forced to sell then I can continue to sell calls and collect an income on the equity until I am called out.

I hope this primer helps the newbs.

Lifty - nice concise explanation

Heres how to win till you lose with options: sell them

Heres how to lose till you win: buy them

You really need to know what youre getting into and the risks and rewards involved. I like to express my view through options usually rather than the underlying instrument, but its so case by case whether Im going to use a long or short position in a put, call or spread. I have been long equity puts for a while now but have been in and out and selling nearer expiration to reduce my cost and picking up some theta while I bleed it out on my main position.